Commissioner Of Income Tax, Bihar v. Bankipur Club Ltd

COMMISSIONER OF INCOME TAX, BIHAR v. BANKIPUR CLUB LTD. MAY 8, 1997 [KS. PARIPOORNAN ANDS. SAGHIR AHMAD, JJ.] Income Tax Act, 1961: Section 28(i). Income tax-AYs. 1960-61 to 1964-65, 1974-75 to 1976-77, 1982-83, 1985-86 to 1989-90-Member's clubs/social action groups-Registered as non-C profit companies under S.25 of Companies Act-Such clubs received from their members amounts for supply of drinks, refreshments etc. as part of usual privileges, advantages and conveniences available to members or by way of admission fees and periodical subscriptions-Memoranda of Association provided for distribution amongst members, or transfer to· a similar associa- D tion as detennined by members, of the surplus amount, if any, on winding up or dissolution of clubs-Profits-Surplus receipts of-Taxability of-Held: Under such circumstances, the said receipts from members, not a "trading activity''-Theref ore, the excess of such receipts over expenditure, not a taxable income. Section 2~Income tax-Income from house property-Ays. 1977-78 and 1978-79-Member's clubs/social action groups-Registered as non-profit companies under S.25 of Companies Act-Accommodation in the buildings of clubs provided to members as part of usual privileges, advantages and conveniences on payment of rent-Memoranda of Association provided for participation of members in surplus on winding up or dissolution of F clubs-Held: Under such circumstances, the excess of the rent received over expenditure, not a taxable income-Companies Act, 1956, S.25. Income tax-Business income-Member's club or mutual con-cern-Held: At what point, does the relationship of mutuality end and that of G trading begin, is a difficult and vexed question-A host off actors may have to be considered to arrive at a conclusion. Income tax-Business income-Mutual club-Held: Whether or not persons dealing with each other, is a "mutual club" or carrying on a trading activity or an adventure in the nature of trade, is largely a question of fact. 263 A Words and phrases: "Trading activity"---Meaning of-f.n the context of S.28 (i) of the Income Tax Act 1961. The respondents were "Members' Clubs"/ "social action groups" and B were companies registered under Section 25 of the Companies Act, 1956 as "non-profit companies". The respondents were assessees to income tax and the assessment years involved were 1960-61 to 1964-65, 1974-75 to 1976-77, 1982-83, and 1985-86 to 1989-90. The respondents received from their members amounts for supply of drinks refreshment etc. as part of C usual privileges, advantages and conveniences available to members as such or by way of admission fees and periodical subscriptions. The respon-dents also received rent for providing accommodation in their buildings to their members as part of usual privileges, advantages and conveniences. The Memoranda of Association provided for distribution amongst the D members, or transfer to a similar association as determined by the mem-bers, of the surplus amount, if any, on winding up or dissolution. The respondents claimed exemption from income tax on their "surplus receipts" on the grounds that they were "mutual clubs" - a species of mutual undertaking, and did not carry on any "trading or business" - and that they did not earn any profit. The High Court held that the aforesaid amounts received by the respondents were only for/towards charges for the privileges, conveniences and amenities provided to the members, which they were entitled to as per the rules and regulations of the respective clubs without any profit motive and, therefore, the respondents were entitled to exemption from income tax in respect of the "surplus receipts". Being aggrieved the appellant-Revenue preferred the present appeal. Dismissing the appeal, this Court 8 ਮਈ 1997